Prepare your portfolio for the next crisis, debacle, crash and collapse right now

By Cody Willard

I’ve been helping several different groups of friends determine how best to allocate their entire financial portfolios. We’re not talking about a quick trading idea or even about how to divvy up their stock and bond portfolios or their IRAs.

We’ve been stepping back and evaluating their entire financial status, net worth, life expectancies, goals and personal outlooks to see if there’s some things they should be doing, or protecting themselves from, that they hadn’t thought of. You know, so they don’t get burned (yet again) by the next “it can’t happen here” real estate bubble collapse, money market collapse, bank collapse, stock market crash, dot-com bubble crash, the next fiscal crisis, the next monetary crisis, the next currency debacle, the next soveriegn bailout, the next … well, you get the point.

I’ve been speaking with former Wall Streeters and money managers worth many millions of dollars to sales people from big technology companies to small business owners who have gotten ahead after years of toil. They’ve collectively and individually worked very hard. They’ve saved and don’t want to lose everything, would like to get a little income off their money and, if possible, see their net worths continue to grow despite the endless crises we collectively and constantly face in this economy. After all, isn’t this exactly what the entire concept of this newsletter is about?

So let’s step back for a moment and look at some basic facts about the different asset classes we can choose to put our money and then we’ll look at some important issues of today that will create tomorrow’s crises.

Stocks and equities

Stocks and equities have been at best break even for most people over the last decade. They’ve caused huge losses and pain for many others, including blue-collar and small town Americans who are just trying to listen to their IRA’s manager’s advice, who have been unfortunate in their timing over the last decade.

The best way to trade equities in the economic realities we live in today, is to do exactly what we’ve been doing in the Revolution Investing portfolio. We’ll want to scale into some equities nice and patiently when they’re down a bunch from their long-term highs. And you want to sell some of your equity exposure nice and patiently any time the market has made huge moves to the upside as it has in the last couple years, for example.

Note that after having caught the huge move up with big equity allocation in the Revolution Investing model portfolio, that we’ve become much less exposed to the stock market in the last month or two.

Treasuries

Treasuries? They’ve been great, but they’re at all times, historic highs. I suppose it’s possible that if our government starts being paid on a regular basis by investors around the world looking for just 95 cents returned every time they lend us money, which would get you some great returns on the 30 year Treasuries you could buy today, but is that really a bet you want to make?

Bonds

Bonds? They’re also at all time, historic highs. The cost of capital has never been as low for our government (near 0% interest rates), which for some reason also means it’s never been this cheap for banks (0% Fed loan rates), for corporations (that’s about the only place that quantitative easing actually impacts besides being more explicit welfare money for the too-big-too-fail banks) and for anybody else looking to borrow HUGE sums of money. Notice how those of us who borrow on credit cards, on car loans, on home equity loans and anything less than say a billion are paying MUCH more than 0% to 6% like those who do borrow billions?

Count that as an issue of today that will likely create some sort of a crisis tomorrow. I mean, what’s going to happen when Ford, for example…[Sign up to read on]

Real estate

In general, I’m very bullish on real estate anywhere that you can buy properties at huge discounts from their highs of the 2004 or 2005 time period. And sure, you should own a home if you want and buying real estate in your local community at a discount is probably also a pretty good idea anytime as long as you have a time frame measured in decades.

Otherwise, real estate’s also very, very tricky as a trade and investment for the next one to five years, as, we still have to deal with…[Sign up to read on]

Cash and money markets

This is one of those issues that is the painful end game of our government’s and the Federal Reserve (which is privately-owned by the same Too Big Too Fail banks that its supposed to be regulating in your name) 70 year march towards move 0% interest rates for the — yup — “too big too fail banks.”

If you’ve saved your money, you have to risk it in the riskiest income-generating assets to get any income at all, much less to cover the real rate of inflation. It’s not fair, it sucks, and it simply punishes anybody who’s been responsible with their money in their lifetimes. But…[Sign up to read on]

The Revolution Investing strategy

So, how best to position ourselves for the strange new political and social systems we’re living in as a result of having nationalized most of our entire auto industry (Chrysler and General Motors) in the last three or four years? How about how to best position ourselves now that more than half of all the mortgages in the country (those held by FNM and FRE) have been nationalized?

How do we set ourselves up for the long-term pain that will certainly result from the new paradigm that the Fed enacted since the Bush/Paulson/Obama/Bernanke regime moved this country’s bank welfare system beyond the idea of simply offering below-inflation rate loans to the banks, but now continues to find explicit means of redistributing private wealth to the government-sponsored banking system?

How best to protect ourselves from the long-term ramifications and expenses of funding several fronts of war without having actually officially declared war against anybody? How best to protect ourselves from the trillions of dollars of new welfare programs for the insurance and pharma and hospital industries that Obama just added to the trillions of dollars of existing welfare we were giving them from the Bush/Clinton/Bush/Reagan programs for the insurance and pharma and hospital industries?

That’s exactly what we’re doing every single week in the Revolution Investing portfolio. The upshot of our stance there is this:

I’ve got some new ideas coming this month, so stay tuned, and please email this article to a couple colleagues and/or friends if you think it’d be helpful for them and they might want to subscribe to Revolution Investing.

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About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.